IFSB user guide for Technical Note 2 on stress testing

The IFSB has released a user guide to facilitate the use and implementation of the stress testing templates provided in its technical note on stress testing for institutions offering Islamic financial services (TN-2).

The IFSB’s TN-2, issued in December 2016, aims to provide regulatory and supervisory authorities and market players in the Islamic banking industry with the appropriate technical guidance to develop, conduct and assess stress tests.

The document addresses multiple types of risks and their interrelated effects on the overall financial position and performance of the portfolio, institution, group or system. TN-2 also provides five basic stress test templates: one each for conducting credit, market and liquidity risk assessments, as well as for rate of return risk, and a scenario analysis template that combines credit and market risk stress tests.

The user guide for TN-2 intends to complement the main technical note while providing additional guidance on the use of the five stress-testing templates set out in TN-2.

IFSB acting secretary-general Zahid ur Rehman Khokher said “The issuance of this user guide follows IFSB’s other work addressing stress testing for Islamic banks. These include, IFSB-13: Guiding Principles on Stress Testing for Institutions offering Islamic Financial Services, TN-2: Technical Note on Stress Testing for Institutions offering Islamic Financial Services, and a sub-chapter on Islamic banking stress testing in the IFSB’s recently released Islamic Financial Services Industry Stability Report 2017.

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